Capitalism & Stock Exchanges

1st May is commonly celebrated all over the world as International Workers’ Day or Labour Day. It has its origins in the labour union movement which fought for the rights of the workers and set the modern world’s standard eight-hour work day.

Despite its socialist origins, or perhaps because of it, the Labour Day holiday has become an integral part of the present-day capitalistic world. Governments & societies across the world celebrate this day as a tribute to the contributions & achievements of the modern worker.

The modern economy is driven by workers. And capital. Not wealth, mind you, but capital. As Yuval Harari puts it in his book Sapiens:

“Capitalism distinguishes ‘capital’ from mere ‘wealth’. Capital consists of money, goods, and resources that are invested in production - wealth, on the other hand, is buried in the ground or wasted on unproductive activities.”

The economic system of capitalism works on the premise of growth. People, organisations, and even entire countries today either take risks & borrow money or lend/invest their savings - all in anticipation of better returns in the future. Some endeavours strike gold, some are successful, and many fail - but as long as this belief in growth exists, investors & entrepreneurs alike continue to look for better opportunities and the overall economy continues to grow.

In fact, the creation of the modern day corporation with different shareholders & the concept of trading shares/stocks on an exchange were itself a financial innovation in response to the growing needs & ambitions of the promising European merchants of the 16-17th centuries.

These European entrepreneurs wanted to raise capital in order to undertake overseas ventures & bring back wealth from places in Asia, Africa, and the Americas. Investing in them was risky but also highly profitable if successful - and ultimately many people were convinced by the promise offered by these merchants & invested in them.

The success (and high returns) of the initial ventures of these entrepreneurs attracted more money, which in turn fuelled more such ventures - and so on, ultimately leading to European dominance across many parts of the world.

Over the years, the stock markets became a popular way for entrepreneurs to raise capital & simultaneously also a mechanism for common people to invest in various profitable (and unprofitable) ventures.

In Sapiens, Harari argues that one of the key things that helped shape the modern world & its capitalist-inclined economies was the advent of modern corporations & the stock exchanges. It facilitated risk-taking activities today in exchange for ownership of potential rewards in the future.

The modern stock exchanges have evolved a lot in the past 3-4 centuries, but the basic tenet remains the same - entrepreneurs & investors alike go there seeking growth & returns. Investments lead to ventures, successful ventures lead to profits, profits result in more investments, and so on. In fact, this is most probably the mantra of the entire global economy nowadays - and stock exchanges epitomise that.

As modern workers, most of us believe that the economies of the world will continue to improve & grow at a certain speed - perhaps some like India & China at a faster pace than others, at least in the near future. But what many of us fail to realise is that, employment aside, the main way to benefit from this economic growth is to invest in companies that actually engender this growth.

The workers from 1-2 centuries ago didn’t really have any other way to participate in the economic growth other than offering their skill/labour - but nowadays, most of us can. Investing has not only become very convenient in recent years, it’s also the one agreed-upon way to build wealth over the long-term.